Businesses and individuals paid £35 billion less in tax than they should have, with more than £9 billion lost through evasion and avoidance according to the latest figures.

Official estimates indicated £11.4 billion of VAT, £15.3 billion of income tax, £4.7 billion in corporation tax and £2.5 billion excise duties was not collected in 2011/12.

The HM Revenue and Customs' (HMRC) figures suggest £5.1 billion was lost to the Exchequer as a result of evasion, £4.7 billion as the result of criminal activity including fraud and smuggling and £4 billion through avoidance schemes.

The £35 billion estimated uncollected tax is an increase of £1 billion from the figure in 2010/11, although the percentage tax gap decreased from 7.1% to 7%.

Exchequer Secretary David Gauke said HMRC would continue to "fiercely" challenge tax dodgers.

He said: "These figures show the tax gap is continuing to fall. The vast majority of businesses and individuals pay the taxes they owe.

"But where they don't it is for HMRC to challenge non-compliance fiercely, protecting money that would otherwise be lost.

"Since 2010, the Government has invested nearly £1 billion in additional compliance initiatives over the Spending Review period. HMRC is on track to secure a further £44 billion in tax revenues over the next two years."

But Labour said the figures showed the Government was failing to tackle the problem.

Shadow exchequer secretary Shabana Mahmood said: "At a time when millions are struggling with the rising cost of living and the deficit is high, it's even more vital that everyone pays their fair share of tax.

"But these figures show the Government is failing to tackle tax avoidance and evasion with the value of the tax gap now up to £35 billion."